Rental Property in Chp 7 Bankruptcy

[GTS1101]

I have a client who is considering giving up her rental home in a Chapter 7 bankruptcy. It was her personal residence for many years and then in 6/2008 she began renting it out. Currently it is still a rental property. She is in the process of filing a Chapter 7 bankruptcy and is thinking about including the rental property in the Chapter 7 bankruptcy. I know with a foreclosure you have to report it as a sale but what about with a bankruptcy. She has claimed depreciation so if she gives up the home in a Chapter 7 does she report as a sale like a foreclosure or does she just stop claiming depreciation and everything gets transferred over to the bankruptcy estate, the basis, the prior depreciation, etc?

With all of the issues in the economy it is creating a lot of challenging tax issues. I love it as it keeps my mind fresh. I spent a few hours researching on this one but I was unclear as to how to report. Any guidance would be greatly appreciated.

Thank You!
GTS1101

[POCAHONTAS]

Hi
were you able to get the answer to this one

[GTS1101]

Not Sure

I don't think I ever got an answer to my question and I am still researching to figure it out.

GTS1101

[JON]

Your insolvent

if Chapter 7 you do not create income. You give up tax attributes that you may have some passive suspended loses. Discharge in bankruptcy is not taxable UNLESS it makes you more than solvent. Then you would be taxable on that amount.

[Gretel]

The way I understand chapter 7 and 11 bankruptcy is that the bankruptcy itself is proof that taxpayer is not solvent. Only watch out for reducing tax attributes.

[JON]

In theory

if every debt was discharged and you end up with $100 in a checking account you have that as taxable.... Assets exceed liabilities.

[Gretel]

Why that? If you don't have all liabilities included in the bankruptcy like tax liabilities or child support you are still insolvent.

[JON]

Insolvent =

liabilities exceed assets!!!!!!!!!!!!! You can have exempt assets= business/home, but it nonexempt assets exceed liabilities you have income....